Gold and Silver Prices Outlook for April 2012

Following the rally of gold and silver prices during January, the sentiment has changes vis-à-vis gold and silver as both of their prices have slowed down and didn’t perform well during the last couple of months; furthermore, gold and silver prices declined during March and at a certain point fell to their lowest levels this year. Despite their bad performance during the month, from the beginning of the year, gold price is still up by 6.01%; silver has added 15.6% to its value. As a comparison the S&P500 rose by 11.1% during the year (up to March 25th).  What were the events and decisions that may have affected the path of gold and silver prices during March? Part of the fall in metals prices might have to do with  the recent decision of the FOMC to keep the policy unchanged and not to introduce QE3 for now. The saga with Greece has ended for now. This news helped rally the Euro and thus may have curbed the fall of bullion prices. Will gold and silver prices change direction and start to rise in April? Let’s analyze the precious metals market for March and provide a short projection for gold and silver prices for April 2012.

Gold and Silver Prices March 2012

Gold and silver prices declined during most of March, even though for several parts of the month there was an unclear trend for both metals as they have zigzagged from gains to losses.

Gold ended March (as of March 23rd) with a 2.86% drop; silver, even more than gold, declined by 6.84%.

Let’s divide March into two parts: the table below divides the month to two with the breaking point at March 13th; I divide the month on March 13th because that was when the FOMC meeting was held; during the first part of March, gold declined by 1% and silver price by 3.1%. During the second part of March, silver fell by 3.9% and gold price by 1.9%.

Gold price outlook and Silver prices FORECAST  us dollar euro percent change  March 2012 April

During the first part of March, the U.S dollar appreciated against the Euro, Canadian dollar and Australian dollar; the last two currencies are usually strongly correlated with gold and silver prices; during the second part of the month, the U.S dollar change direction and depreciated against the Euro; this shift might have curbed the decrease of gold and silver prices during the second part of the month as I will explain later on.

The chart below presents the developments of gold and silver prices during March, in which the prices are normalized to 100 on February 29th 2012.

Gold prices forecast & silver price outlook March April 2012

The next chart shows the changes in the ratio of gold to silver (gold price/silver price) during the month; the ratio didn’t change much, but did have a moderate upward trend. The ratio rose as silver price has underperformed gold price. In the last week of March the ratio ranged between 51 and 52.

Gold and Silver prices ratio 2012 April

Here are several factors that may have curbed the rally of gold and silver prices during March:

  1. The FOMC decision to keep its policy unchanged (see below for more);
  2. The concerns during the first couple of weeks regarding the Greek debt crisis;
  3. The U.S labor report of March showed a sharp rise in U.S. employment by 227k; this report is usually negatively correlated with gold and silver prices (see below);
  4. The U.S GDP expanded by 3% during Q4 2011; this news may have strengthened the US dollar and consequently weakened precious metals;
  5. The rise in U.S long term securities yields during most of the month (see below for more on this issue);
  6. The protest in India (the leading country in importing gold) against the new tax for importing gold;
  7. the growing concerns that the economy of China, one of the leading countries in importing gold, is slowing down;

Here are several factors that may have contributed to gold and silver to trade up during March:

  1. The rise in the Euro during the second part of the month after the Greek debt crisis was averted (see below for more on this subject);
  2. The ongoing FOMC pledge to keep rates low until late 2014;
  3. The U.S. federal deficit sharply grew by 231 billion during February 2012; this expansion raised the uncertainty level in the market;
  4. The news regarding the moderate contraction  in the U.S. housing market (including the drop in housing starts);
  5. The rise in the S&P500 and oil prices that are strongly and positively correlated with the changes of gold and silver prices;

Outlook for Gold and Silver Prices – April 2012

Here are several factors to consider that may affect the direction of gold and silver:

The ECB will decide during the second week of April its rate; in March the ECB President kept the interest rate unchanged at 1.00%. If the ECB will lower the rate, this may curb the recent rally of gold and silver prices. The recent rise in M1 and M3 might affect the ECB to consider keeping the rate unchanged or perhaps even raise the rate if the EU inflation pressures will start to pick up.

The European debt crisis has had a negative effect on the Euro and this in turn had a negative effect on gold and silver prices. If there will be big headlines from Europe it could adversely affect not only the Euro, but also precious metals prices.

The upcoming minutes of the March FOMC meeting to be released on April 3rd and even more importantly the next FOMC meeting which is set to April 25th and 26th could shake up the precious metals market again as it did in the March meeting. If there will be another pull back from the concept of monetary expansion, it may continue to drag down gold and silver prices. Since the recent FOMC meeting already did so, then this upcoming meeting may have a lesser effect on metals and currencies.

In conclusion, I speculate gold and silver might make a comeback during the first couple of weeks especially if the EU will continue to stabilize and the U.S economy won’t present big signs of recovery as it did in recent months. But as the month will end, and assuming the upcoming FOMC meeting at the end of April will keep the door close on QE3, gold and silver prices will decline and thus will end the month with little gain if at all. On the other hand, if the concerns regarding the European debt crisis will reignite and the U.S. will continue to show signs of recovery it could negatively affect the direction of precious metals prices

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